OUDTSHOORN BUSINESS NEWS - Despite the economic slowdown due to COVID-19, the trading figures continue to surge and so are the scams related to trading. The forex market has been gaining tremendous popularity globally in recent years with the daily trading average volume crossing $20 billion USD in South Africa as per BIS data in 2019.
Many publicly listed global brokers like IG Markets, Plus500 that also operate in South Africa, have reported high growth in trading volumes & new signups YOY during the last 2 quarters.
More retail investors are getting attracted to online trading for side income. But, with the rise of new and less experienced traders in the market, the number of reported scams is rapidly escalating.
“New investors are mostly unaware of the rules and regulations; or even basics of investing in some cases, which makes them more prone to false claims by scammers and dishonest brokers. Fear of losing out and desire to make money makes them vulnerable to trading scams and people giving them false hope”, explains Rahul of ForexBrokers.co.za.
There are many investment scams that are common and are similar in every manner as they promise unusually high returns by using name of complex investment options like Forex or Bitcoin or even Stock market. Forex trading scams are one such type of scams that are on rise in SA.
Traders & Retail investors, especially new ones, need to act smart and be aware of the scams in the concerned markets.
Here are some of the common scams in South Africa that are abusing the trading markets along with ways to avoid them.
Common types of Trading Scams
- Unregulated or dishonest brokers
A large number of brokers accept & target retail traders from South Africa, out of which some are unregulated or fake and conmen. The fake brokers are unregulated and generally offer unrealistic deals that are nearly impossible to be offered by authentic brokers. These brokers are generally new and unknown in the market and may provide fictitious offers to attract traders.
The recent scam by the bitcoin investment firm named “Mirror Trading International” (MTI) is one such example of fake, unregulated broker in South Africa.
Some of the brokers may also make false or dishonest claims that they are licensed by FSCA. You need to verify the FSP Number provided by the broker on the FCSA search website to see if they are actually licensed to offer the services that they are claiming to have been authorized for - like derivatives instruments.
Trading in the capital market always involves a decent amount of risk and the profits are not guaranteed. The fake and dishonest brokers generally promote investing as a method to gain lucrative returns that are too good to be true without involving reasonable risk.
Most of these fake or unregulated brokers use social media or also spam call repeatedly to inform about the unreal returns in various trades. An insightful trader must be able to identify fake brokers by verifying the broker’s regulation, checking online reviews and ratings by other verified traders.
- Unregulated investment funds
The authentic investment funds will always be regulated by a renowned regulatory authority of a particular jurisdiction like with FSCA in case of South Africa.
An unregulated investment fund generally claims to provide unrealistic returns that are much higher than the regulated investment funds, but in reality, these funds or schemes are very likely to be fake.
Unregulated investment funds are independent entities that can redirect the investment amount into any capital markets or investments. These investments can be venture capital, cryptocurrencies, credit risk funds, high-risk stocks, or even betting and gambling that are not suitable for the investor. They may even use the funds for their own purposes and run a Ponzi/pyramid scheme in disguise of an investment. Investors must avoid unregulated investment funds as these entities can lead to catastrophic losses.
- Ponzi or Pyramid Schemes
Ponzi or pyramid scheme is an unsustainable investment scheme in which notable and consistent returns are promised by the issuer at the expense of small initial investment. In such schemes, the top-level members recruit new members and the new members do the same which makes a pyramid of investors. The initial investments of the new members are used to reward the existing members.
These types of investment schemes can only sustain until new members are added continuously. If no new members are added, no income is generated and no returns will be available for the existing members. In other words, if the base of the pyramid stops growing, the whole pyramid or the scheme collapses.
Such schemes are banned in most of the countries. Traders or investors must avoid falling into traps of Ponzi or pyramid schemes as these are unregulated and mostly run by conmen.
- Unauthorized Financial advisors
Numerous unregulated investment advisor firms are running for a long time in South Africa. These unregulated firms are operated by unauthorized financial advisors who can turn your hard-earned money into dust for self-interest.
Unregulated or unauthorized means they offer no protection to the investor and do not have to inform any supervisor or government regulatory authority about the investments.
As they are un-authorized, they don’t follow proper financial advisor’s code of conduct and may advice you wrong investments or sometimes act in personal interest to convince you to invest in their firms. Some of them may also not have required qualification to provide financial advice or handle investments.
These so-called financial advisors may call themselves “leading wealth managers” but are actually conmen who seek to attract laymen and new traders with tempting offers and taglines. It is almost impossible for the government to weed out such advisors as they may exist in large numbers online and remote places and are hard to track.
Some of the unregulated financial advisors can also be selling you fake courses, fake trading signals or fake automated trading software guaranteeing you returns, which is often scam.
One would ask, Is Forex Trading a Scam? Is it legal?
No, Forex market is neither a scam nor a pyramid scheme. In fact, it is one of the most crucial capital markets for governments, international businesses, and global goods & services trade.
Forex is a legal trading market in which currencies from all over the globe are traded against other currencies. Forex market is the most liquid and largest trading market in the world with a daily trading volume of 6.6 trillion USD. Forex trading has been quite helpful to stimulate the global economy and maintain the financial stability of nations.
Retail Forex trading Industry is a part of the forex market where individuals or investors can take part, and according to estimates it contributes to about 4-5% of the global daily forex market volume. It is regulated in SA by FSCA.
There have been multiple scams in the name of retail forex trading, done by the unregulated entities or individuals that are scammers who seek to con their victims by promising unreal returns.
One cannot blame forex market or stop using forex due to deeds of few scammers and bad players that use its name to defraud innocent investors. The need here is to educate the general public and investors to avoid being a victim of these scams.
Traders looking to invest in retail forex market should educate themselves about the fundamentals, technicals and learn to avoid the scammers and choose the legal and well-regulated FSCA licensed brokers approved for offering derivative instruments.
How can I avoid being a victim?
Regulatory authority plays a vital role in safeguarding the traders, investors from various cons and scams. It is least likely for a broker or entity licensed with top tier regulation to involve in trading or investment scams.
In South Africa, Financial Sector Conduct Authority (FSCA) is the financial market conduct regulatory authority. All the brokers & financial service providers must be approved by FSCA, and are issued a unique FSP No. which can be verified through FSCA’s public search.
Every forex trader in South Africa should seek for a broker or Financial services provider that is authorized by FSCA for offering derivatives instruments like - Hotforex (FSP no. 46632), Plus500 AU Ltd. (FSP No. 47546), IG Markets South Africa (41393 FSP No.), AvaTrade (45984 FSP No.) are few examples of authorized brokers.
Its best to ask your broker or dealer about the license they have with FSCA, allowed services they can offer and verify the same at the above FSP public search if they are actually authorized to offer such services.
Beginner investors or traders in the forex market must educate themselves on the fundamentals, technicals of the market, trading instruments and must know all the details like - risks, returns, tools, rules and regulations before they start investing.
You must never invest your money with unregulated entities nor let others invest for you.
What is the redressal if you Lost Money?
There is little that can be done to recover the lost money in cases of most of the trading scams. The scammers generally do their best to hide their original identity and are not regulated with any government authority. Hence, it becomes quite difficult to recover the lost money in trading scams.
Still there are some legal remedies, like you can report to authorities & financial regulator like FSCA so that they can begin investigation into the fraud and stop others from being defrauded.
A complaint must be immediately filed to the relevant authorities in your region, once you suspect a scam.
The scams can also be reported to various fund recovery firms who assist the customer in the recovery of a fraudulent transaction. In some cases, the authorities or agencies might be able to recover the lost money but they cannot always ensure the recovery.
So, it’s best to stay vigilant and be attentive from the start.
Supplied by Forex Brokers SA
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